The Theory's Core Idea:

Elliott believed that markets are driven by the collective behavior of investors, who predictably react to news and events. This collective behavior creates a series of waves, or patterns, that can be identified and used to predict future market movements.

The Five Core Principles:

1. Wave Patterns: Markets move in a series of five waves in the direction of the main trend, followed by three waves in the opposite direction.

2. Wave Degrees: Waves come in different sizes, or degrees, which are classified as Primary, Intermediate, and Minor.

3. Wave Direction: Waves move in the direction of the main trend, with impulse waves (1, 3, 5) moving in the direction of the trend and corrective waves (2, 4) moving against the trend.

4. Fibonacci Ratios: Waves relate to each other in a specific way, using Fibonacci ratios (23.6%, 38.2%, 50%, etc.).

5. Fractals: Wave patterns repeat themselves at different degrees, creating a fractal structure.

Understanding these principles can help you:

• Identify the main trend and its direction

• Anticipate potential reversals and corrections

• Set profit targets and stop-loss levels

• Improve your market timing and decision-making